Reserve Bank of India (RBI) permits residents and non-residents to undertake rupee IRD transactions

Key facts

• Residents and non-residents are permitted to undertake transactions in rupee interest-rate derivatives (IRD), according to master directions released by the Reserve Bank of India (RBI).
• Non-residents can enter these trades through their central treasury or group entities if the market maker is authorized to transact on their behalf.
• Market makers include scheduled banks, standalone primary dealers, upper-layer non-banking financial companies (NBFCs), and specified development or specialized banks.
• Market makers must classify participants as retail or non-retail users.
• Non-retail users include NBFCs (other than market makers) and other institutional entities.
• The combined Price Value of a Basis Point (PVBP) of all outstanding IRD trades by non-residents may not exceed ₹1,000 crore.
• After reaching the ₹1,000 crore PVBP limit, fresh positions for non-residents can only be taken for hedging purposes.
• The rules apply to IRD transactions in both the over-the-counter market and on recognized stock exchanges.
• Exchanges are permitted to introduce any IRD product after approval from the RBI.
• Floating rates or indices used in exchange-traded products must be benchmarks published by an authorized financial benchmark administrator.
• Market makers must report global IRD transactions by their offshore-related parties to the central trade repository, operated by Clearing Corporation of India.
• Exchanges offering IRD products must submit reports and documentation to the RBI or designated agencies in specified formats.
• Exchanges must ensure that users are informed of the risks associated with IRD products before they enter the market.
• Foreign portfolio investors and other non-resident investors are not allowed to hold net long positions exceeding ₹5,000 crore across all interest-rate futures.
• Gross short positions for non-residents cannot exceed consolidated long positions in government securities and futures.
• Non-resident IRD transactions must be routed through rupee accounts in India or through vostro accounts for settlement.
• Foreign currency-settled IRD payments may be made through standard banking channels.